Czech Government Pushes Through Crucial Bills

Czech government bills aiming to partially privatize the country’s state-run pension system and allow religious organizations to claim back $2.9 billion worth of property seized by the former Communist regime were approved by the lower house of parliament late Wednesday, hours after the country’s government won a vote of confidence.

The vote on the church property restitution bill–overriding an earlier upper-house veto–will allow 17 religious denominations to operate or sell thousands of buildings and acres of land to fund their activities. The bill will put many decrepit buildings in the care of local communities after decades of neglect during the Communist rule through 1989 and only limited upkeep in the last two decades, when successive democratic governments held talks with religious leaders over the terms of property restitution.

The pension bill, also a result of nearly two decades of debates, will still face headwinds as the left-of-center Social Democratic opposition party said it aims to thwart its implementation, arguing the pension reform is ill-conceived by the ruling conservative government.

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In the parliamentary vote that overrides an earlier veto by President Vaclav Klaus, 102 lawmakers in the 200-seat lower house were in favor of the bill that adds a funded pension scheme to the system, giving it the so-called second pillar.

The bill, championed by Czech Prime Minister Petr Necas whose cabinet Wednesday survived a parliamentary no-confidence vote and got its tax-increase bill approved by the lower house, is set to take effect in 2013.

It allows taxpayers to divert a portion of their mandatory pension contribution to privately-managed fund companies. Currently, all mandatory pension withholdings are put into the country’s state-run pay-as-you-go system that funds current pension payouts but saves and invests nothing.

As the median age in the Czech Republic increases in step with the demographic trend of aging populations seen elsewhere in Europe, there are fewer young people moving into the workforce. As such, the current pay-as-you-go system is unsustainable in the long run and many institutions, such as the International Monetary Fund or European Union, have made repeated calls for its overhaul.

But after two years of fiscal austerity and economic recession, the electorate is wary of new financial schemes and the opposition Social Democratic Party–which controls the Senate, the upper house of parliament–aims to kill the pension bill.

“We’re against any privatization of the pay-as-you-go system and instead we prefer adjusting the existing supplementary pension-savings programs,” said opposition party chairman Bohuslav Sobotka, who promised to repeal in future any pension reforms enacted without opposition support.

Mr. Sobotka also called for insurance and pension companies to not participate in the plan, asking them to wait for a bipartisan overhaul to be put together after the next general elections in 2014. Instead Mr. Sobotka favors overhauling the already existing supplementary pension savings plans, used by more than four million Czechs, nearly all working-age population of the 10 million country. Participation in the supplementary pension savings scheme provide some tax breaks but still the government’s state-run pay-as-you-go system is still left to finance the bulk pensions.

Recent opinion polls show that 9% of eligible participants support partial privatization of the state-run pension system, vindicating Mr. Sobotka’s criticism. Amid the uncertainty around the pension changes, two Western European insurers that are active in the Czech market–France’sAXA SA and Netherlands-basedING Groep NV–have said they won’t participate in the system.

However, Italian-Czech joint venture Generali PPF Holding, which dominates the Czech market and operates insurance businesses throughout Central and Eastern Europe, will participate in the plan if it is approved, said Richard Kapsa, the company’s head of communications. The joint venture is majority owned by Italy’sAssicurazioni Generali SpA and owns Ceska Pojistovna, the country’s largest insurer and pension fund manager

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